AN ACT Relating to underinsured motor vehicle liability insurance; adding new sections to chapter 48.22 RCW; repealing RCW 48.22.030 and 48.22.040; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. This act is intended to clarify the existing underinsured motor vehicle insurance act, to reaffirm the legislative intent that underinsured motorist coverage be a last resort for an insured, and to modify or incorporate recent court interpretations of the existing act to ensure that this coverage will continue to be available at a reasonable cost.

NEW SECTION. Sec. 2. As used in this chapter, the following terms have the meaning indicated unless the context clearly requires otherwise.

(1) "Underinsured motor vehicle" means:

(a) A motor vehicle with respect to the ownership, maintenance, or use of which no bodily injury or property damage liability bond, insurance policy, or self-insurance certificate as provided for in chapter 46.29 RCW, applies or could apply at the time of an accident;

(b) A motor vehicle with respect to the ownership, maintenance, or use of which the sum of the limits of liability coverage under all bodily injury or property damage liability bonds, insurance policies, and self-insurance as provided for in chapter 46.29 RCW applicable to a covered person after an accident is less than the limits for underinsured motorist coverage of the insured;

(d) A phantom motor vehicle.

(2) A motor vehicle insured under the liability coverage of the policy providing underinsured motor vehicle insurance shall not be considered underinsured for purposes of such underinsured motor vehicle coverage.

(3) "Phantom motor vehicle" means a motor vehicle that causes bodily injury, death, or property damages to a person and has no physical contact with the person or the motor vehicle that the person was occupying at the time of the accident if:

(a) The facts of the accident can be corroborated by competent evidence other than the testimony of the named insured or any occupant of the insured's vehicle; and

(b) The accident has been reported to the appropriate law enforcement agency within seventy-two hours of the accident.

(4) "Hit-and-run motor vehicle" means a motor vehicle that causes bodily injury, death, or property damage through physical contact with the person or the motor vehicle that the person was occupying at the time of the accident and the operator or owner of such motor vehicle cannot be identified.

(5) "Motor vehicle liability policy" means a policy insuring against loss resulting from liability imposed by law for bodily injury, death, or property damage suffered by any person and arising out of the ownership, maintenance, or use of a motor vehicle.

NEW SECTION. Sec. 3. (1) No motor vehicle liability insurance policy may be issued or renewed with respect to any motor vehicle registered or principally garaged in this state unless the policy provides coverage for damages the insured is legally entitled to recover from owners or ownership, maintenance, or use of such motor vehicles.

(2) For purposes of this section "insured" shall include only the persons listed below who have personally suffered a bodily injury or death as a proximate result of an accident:

(a) The person named in the policy;

(b) Any family member defined as a person related to the named insured by blood, marriage, or adoption who is a resident of the named insured's household; and

(c) Any person occupying or using, with the permission of the named insured or spouse, a motor vehicle insured under the policy.

"Insured" shall not include any other person who has suffered consequential damages as a result of such bodily injury or death unless the person would have been a covered person if he or she were physically involved in the accident.

(3) Underinsured motorists insurance coverage need not be provided for:

(a) An insured while such insured is operating or occupying a motorcycle or motor-driven cycle unless such vehicle is a vehicle specifically insured as a described vehicle under the liability coverage of the policy;

(b) An insured while such insured is operating or occupying a motor vehicle owned by or available for the regular use of the named insured or any family member and such motor vehicle is not insured under the liability coverage of the policy; and

(c) General liability policies, commonly known as umbrella policies, or other policies which apply only as excess to the motor vehicle liability policy directly applicable to the insured motor vehicle.

NEW SECTION. Sec. 4. (1) The underinsured motor vehicle insurance coverage for bodily injury or death required to be offered under section 3 of this act shall be in the same amount as liability coverage of the policy, unless the insured rejects all or part of such coverage as provided in section 5 of this act.

(2) The underinsured motorist insurance coverage for property damage required under section 3 of this act shall not exceed the value of the insured motor vehicle. Such property damage coverage need only be provided in conjunction with coverage for bodily injury or death. The property damage coverage required under this chapter means physical damage to the insured motor vehicle unless the policy specifically provides coverage for the contents of the insured motor vehicle or for other forms of property damage.

(3) The underinsured motorist vehicle property damage coverage may provide for deductibles which shall be set forth in the policy.

(4) The limit of liability for underinsured motorist coverage for bodily injury, death, or property damage is the insurer's maximum limit of liability for all damages resulting from any one accident regardless of the number of covered persons, claims made, vehicles or premiums shown on the policy, premiums paid, or vehicles involved in an accident.

(5) The policy may contain a provision that if an insured has other underinsured motorist insurance coverage available to the insured under other policies, the total limits of liability of all coverages shall not exceed the higher of the applicable limits of the respective underinsured motorist insurance coverage.

(6) Notice of a potential claim for underinsured motor vehicles insurance benefits must be given to the insurer as soon as practicable but in no event later than the time period prescribed for personal injury, death, or property damage actions under chapter 4.16 RCW.

NEW SECTION. Sec. 5. A named insured or spouse may reject, in writing, all or part of the underinsured motor vehicle coverage for bodily injury or death, or property damage, and the requirements and provisions of sections 3 and 4 of this act shall not apply. If a named insured or spouse has rejected all or part of underinsured motor vehicle coverage, such coverage need not be included in any supplemental or renewal policy unless a named insured or spouse subsequently requests such coverage in writing.

The requirement of a written rejection under this section shall apply only to the original issuance of policies after July 25, 1983, and not to any renewal or replacement policy issued by the insurer or any affiliated company.

NEW SECTION. Sec. 6. (1) The term "underinsured motor vehicle" with reference to coverage offered under any insurance policy regulated under this chapter shall, subject to the terms and conditions of such coverage, be deemed to include an insured motor vehicle where the liability insurer thereof is unable to make payment with respect to the legal liability of its insured within the limits specified therein because of insolvency.

(2) An insurer's insolvency protection shall be applicable only to accidents occurring during a policy period in which its insured's underinsured motorist coverage is in effect where the liability insurer of the tort-feasor becomes insolvent within three years after such an accident. Nothing herein contained shall be construed to prevent any insurer from affording insolvency protection under terms and conditions more favorable to its insureds than is provided hereunder.

(3) In the event of payment to an insured under the coverage required by this chapter and subject to the terms and conditions of such coverage, the insurer making such payment shall, to the extent thereof be subrogated to the rights of the insured to whom such claim was paid against any person legally liable for such damages and be entitled to the proceeds of any settlement or judgment resulting from the exercise of any rights of recovery of such insured against any person or organization legally responsible for the bodily injury, death, or property damage for which such payment is made, including the proceeds recoverable from the assets of the insolvent insurer. Whenever an insurer shall make payment under the coverage required by this section and which payment is occasioned by an insolvency, such insurer's right of recovery or reimbursement shall not include any rights against the insured of said insolvent insurer for any amounts which would have been paid by the insolvent insurer. Such paying insurer shall have the right to proceed directly against the insolvent insurer or its receiver, and in pursuance of such right such paying insurer shall possess any rights which the insured of the insolvent company might otherwise have had, if the insured of the insolvent insurer had personally made the payment.

NEW SECTION. Sec. 7. The provisions of underinsured motorist coverage do not apply to any bodily injury, death, or property damage until the limits of all applicable bodily injury and/or property damage liability policies of all insured motor vehicles causing injury have been exhausted in full by payment of judgments or settlements, and proof of such is submitted to the insurer providing underinsured motorist coverage. The maximum liability of the insurer providing underinsured motorist coverage shall not exceed the insured's underinsured motorist coverage limits, less any amount paid to the insured by or for any person or organization that may be legally liable for the injury, including but not limited to payment made by the insurer of any motor vehicle or driver causing the injury. The underinsured motorists coverage is in excess to benefits paid by any health insurer, health care provider, any workers' compensation law, or similar disability benefits law. There shall be no duplication of coverage or benefits nor shall the underinsured coverage be subject to any subrogation claims or liens.

NEW SECTION. Sec. 8. If an insured and the underinsured motorist insurer cannot agree on issues of liability and/or the amount of underinsured motorist benefits that may be due, it shall be determined by arbitration. Either party may make a written demand for arbitration. In this event, each party shall select an arbitrator. The two arbitrators shall select a third. If they cannot agree within thirty days, either party may request that selection be made by a judge of a court having jurisdiction. The parties may agree to any one arbitrator in lieu of all three. Unless both parties agree otherwise, arbitration will take place in the county in which the insured has his or her principal residence. Local rules of law as to procedure and evidence will apply. The decision of the arbitrators shall be in writing. A decision agreed to by two of the arbitrators will be binding, except for appeals provided under chapter 7.04 RCW. Each party will pay the expenses it incurred, and bear the expenses of the third arbitrator equally. The arbitrators shall conduct themselves in accordance with the code of judicial conduct as it applies to part-time judges.

NEW SECTION. Sec. 9. Sections 1 through 8 of this act are each added to chapter 48.22 RCW.

NEW SECTION. Sec. 10. This act shall take effect on January 1, 1988, and shall apply to all motor vehicle liability policies issued or renewed after the effective date of this act. The commissioner may immediately take such steps as are necessary to ensure that this act is implemented on its effective date.

NEW SECTION. Sec. 11. The following acts or parts of acts are each repealed:

(1) Section 27, chapter 150, Laws of 1967, section 1, chapter 117, Laws of 1980, section 1, chapter 150, Laws of 1981, section 1, chapter 182, Laws of 1983, section 1, chapter 328, Laws of 1985 and RCW 48.22.030; and

(2) Section 3, chapter 95, Laws of 1967 ex. sess., section 2, chapter 117, Laws of 1980, section 2, chapter 182, Laws of 1983 and RCW 48.22.040.